As building costs soar, developers in Greater Boston are putting the brakes on new housing projects.
And given the record high home prices and rents in the Boston area, the last thing we need right now is for residential construction to start slowing.
But that’s what appears to be happening, with a 10 percent drop in the number of building permits issued for new homes and apartments across the region through the first five months of 2022, Census Bureau numbers show.
Construction of single-family homes took the biggest hit, plunging 22 percent, with just 1,722 permits issued through May across Greater Boston compared to the same period in 2021.
While demand is still strong, a combination of a shortage of key construction materials, with surging prices for them as well, have led home builders to delay or even stop some projects, said Jeff Rhuda, business development manager for Symes Assoc., a Beverly-based residential developer.
In fact, construction costs are up 30 to 40 percent over pre-pandemic levels, Rhuda noted.
That said, with mortgage rates having shot up from an average of 3.76 percent in March to 5.54 percent last week, according to Freddie Mac, it’s only a matter of time before the higher cost of borrowing – and the increase in mortgage payments this represents for potential buyers – begins to take a toll on demand locally.
Nationally, that already appears to be the case, with building permits for new homes falling 8 percent to 967,000 in June, hitting a low not seen since June 2020, in the early throes of the pandemic.
$1M per Home? Not So Crazy
Meanwhile, these drops come against the backdrop of a local housing market that has underperformed now for decades when it comes to producing enough single-family homes to keep up with demand.
And the combination of anemic supply with strong demand, fueled by the Boston area’s booming economy, has catapulted home prices over the moon.
It’s gotten so bad, in fact, that the prospect of the median home price in Greater Boston hitting the $1 million mark, which would have been considered a stretch just a few years ago, now looks almost inevitable.
The median sale price of a home in Greater Boston hit $900,000 in June, according to the latest stats. That represents a nearly 11 percent jump from last June, when the median home price was $811,500, the Greater Boston Association of Realtors reports.
Another year of 11 percent growth and the median price for a home in the Boston median price will have hit $999,000 – practically $1 million.
Vacancies at Unbelievable Lows
The multifamily side of the market looks slightly better, though it would be hard to categorize a 6.4 percent drop in the number of building permits issue for new condominiums and apartments a good news story.
Year to date, developers pulling permits for 4,438 condo and apartment units in May, down from 4,472 a year ago.
But drop off in multifamily construction has been particular sharp in the last few months, plunging by nearly 50 percent in May, to just 711 units, down from 1,219 the year before. That followed smaller, though still double-digit drop in April to 1,274 units, down from 1,483 in May 2021.
Like the single-family home market, the last thing the apartment, and to some degree the condo sector as well, needs is a drop in new construction.
The vacancy rate in Boston right now is an unbelievably tight 0.47 percent, according to Boston Pads. That means 99.53 percent of all apartments in Boston have tenants. Over the past year, the apartment availability and vacancy rates have dropped by 80 percent, according to the company’s latest report.
Here’s hoping the downward trend we are starting to see when it comes to new residential construction in the Boston area turns out to be a temporary slowdown, a blip on the screen.
But what appears to be an accelerating slowdown in new residential construction, there are real reasons to be concerned.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at email@example.com.